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Arizona First State to OK Nonlawyer Ownership of Law Firms (2)

Aug. 28, 2020, 3:21 PM; Updated: Aug. 28, 2020, 8:39 PM

Arizona is the first state to formally allow nonlawyers to co-own law firms and other legal service operations, part of changes approved by the state’s highest court and designed to increase the public’s access to legal services.

The regulatory reforms, approved unanimously on Thursday by the Arizona Supreme Court, are meant to boost innovation and make legal services more affordable while still protecting the public. They also could have another consequence: allowing the Big Four accountancies a way to begin competing more directly with law firms, an eventuality some firms have feared because of the Big Four’s size and tech prowess.

Arizona’s elimination of ethics rule 5.4, which bars nonlawyers from having an economic interest in a law firm, is accompanied by a framework to license these new businesses, called “Alternative Business Structures.” The court also instituted a new licensure process that will allow nonlawyers, called “legal paraprofessionals,” to begin providing limited legal services, including being able to go into court with clients.

The changes, effective Jan. 1, “will make it possible for more people to access affordable legal services and for more individuals and families to get legal advice and help. The new rules will promote business innovation in providing legal services at affordable prices,” said Arizona Supreme Court Chief Justice Robert Brutinel in a statement.

Bar groups in several other jurisdictions, including Chicago and the District of Columbia, also are working toward making recommendations for similar changes.

Utah is the farthest along. Earlier this month, the Utah Supreme Court voted unanimously to establish a regulatory “sandbox” for non-traditional legal providers and services to test new business models, including entities with nonlawyer investment or ownership. Data will be collected through the sandbox, allowing for a new state office to assess and recommend applicants to the court for licensing.

California took a big step in heading down Utah’s path in May, when the state bar’s board of trustees voted 9-2 to form its own temporary regulatory sandbox.

Before deciding to scrap rule 5.4, the court’s justices had to ask “are these rules necessary to protect the public? Or are they restraints on the practice of law?” said Ann A. Scott Timmer, the vice chief justice of the Arizona Supreme Court who chairs the state task force on the delivery of legal services.

The justices decided that the rules served primarily as a restraint on legal practice, and potentially on legal innovation, Timmer said. The state could protect the public through other means, she said, including a new regulatory framework that will license new types of lawyer-nonlawyer owned businesses.

Big Four To Big Law

Arizona’s move comes as the Big Four—EY, KPMG, PwC, and Deloitte—and Big Law firms continue to find new ways to encroach on each others’ turf.

Last month, Deloitte announced its new U.S. Legal Business Services practice, which works with law departments to streamline functions that track client contracts, invoices, eDiscovery, and other core tech functions. A few weeks later, EY’s global legal managed services leader told Bloomberg Law that EY plans on doubling its legal managed services revenues over the next 12 months—with the U.S. market key to its plans.

At the same time, both Ropes & Gray and Paul Hastings recently have formed new consultancies that focus on some of the same services the Big Four have offered to corporate clients, such as data analytics and regulatory compliance and education work.

Paul Hastings’ new life sciences consulting group is being led by former Deloitte senior manager BJ D’Avella.

Consulting shops like the Big Four “never before had to worry about Big Law,” said Gary Giampetruzzi, global chair of the firm’s life sciences department, in an interview. “That’s just changed.”

(This version notes that the vote to make the changes was unanimous, and also quotes Arizona Supreme Court vice chief justice Timmer in the new eighth and ninth paragraphs.)

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com

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